Moelis & Co. IPO: Ken Moelis calls it a success

MattJarzemsky

Shares of Moelis & Co. opened higher in their trading debut, after an initial public offering that priced below the New York investment bank's expectations.

As far as investment banker Ken Moelis is concerned, the IPO of his eponymous advisory firm, which he founded in 2007 after departing from UBS AG, was yet another successful deal.

In an interview on Wednesday afternoon, he said he was pleased that investors in the deal got to see the stock rise in first-day trading. "If I had written it up in the locker room, this is how it would have turned out."

The firm sold 6.5 million shares in its debut, raising $162.5 million before the potential sale of additional shares by underwriters. The sale fell short of the company's projection to sell 7.3 million shares for $26 to $29 each, according to a regulatory filing. The proceeds will be used to buy back shares from early partners, the company said its IPO prospectus.

The shares held the gains in early trading, after opening on the New York Stock Exchange at $27, up 8% from the company's $25 IPO offer price. In midafternoon trading they were up 5% at $26.26. The stock-market value of the firm stands at about $1.3 billion, according to FactSet, with Mr. Moelis and his family's stake worth around $400 million.

The lackluster pricing follows a pullback in U.S. stocks in recent weeks, particularly in shares of many newly public companies. IPOs have still been getting done this week, but all five U.S.-listed debuts to price since the weekend have seen investors offer a lower per-share price than the companies had expected.

Demand for shares of newly listed companies has suffered alongside the past month's selloff in certain parts of the market, such as high-growth technology and biotechnology stocks.

Mr. Moelis said that he and his underwriters, led by Goldman Sachs Group Inc., were taken aback by the market's poor performance last week.

"This volatility hit hard and fast. When we gave the go ahead, I thought it was blue skies," said Mr. Moelis.

He said the group discussed on Friday possibly postponing the pricing of the deal, citing sharp declines in the Dow Jones Industrial Average and news that Russia could be on the verge of further military action in Ukraine. Mr. Moelis said he pressed for a deal even smaller than the reduced 6.5 million shares they ultimately sold.

But Mr. Moelis and his bankers decided not to reduce the size any more, to retain sufficient liquidity to attract big investors. They settled on the below-range price of $25 as a way to try to ensure that the stock rose in first-day trading to reward those investors for buying into the deal.

"We don't need the proceeds to run the company, we have no leverage," he said. "I was intent on one thing: A good transaction for our investors....I think it's essential that they come out ahead."

Shares of the so-called investment banking boutiques that closely resemble Moelis haven't escaped the selling. Evercore Partners Inc. 's shares fell 17% this year through Tuesday while Lazard Ltd. declined 2.4%. They are up 31% and 29% the past 12 months, respectively, well ahead of the S&P 500's 17% advance.

Now, Mr. Moelis must return to work and deliver on the promises he made to get the deal done. During the company's pitch to investors, it said it planned to increase the productivity of its bankers from $4.8 million a head to between $6 million to $9 million.

Already, the first quarter saw Moelis's revenues jump to an estimated $113 million to $115 million, compared with $60 million a year earlier, according to a regulatory filing.

Mr. Moelis said that the "superstars" he hired from bigger Wall Street banks during the financial crisis on his way to growing to over 300 bankers, are still learning the firm's culture and ramping up to their full productivity. He said that because bankers at Moelis don't work for individual commissions, it took time to get them functioning in teams.

"I wouldn't annualize the percentage [growth rate in the first quarter]....but we have a strong business and our MDs are spending more time on the platform, getting used to a different model, a team platform, " he said.

At the IPO price of $25, Moelis's proposed dividend of 17 cents a quarter translates into a yield of 2.7%, above the S&P 500 index's yield of 2%, according to FactSet.

Other independent adviser firms, such as Greenhill & Co., have paid better-than-average dividends and bought back shares to offset the grant of stock to bankers as compensation, as a further way of returning cash to shareholders. Mr. Moelis said that he expected his firm to follow a similar model.

"If you stick to advice only, you have no real use for capital. You should return all of your cash generation to shareholders," he said, referring to the fact that unlike big banks, Moelis doesn't use its capital to lend or facilitate big trades for investors.

As for the firm's book club--in which about 60 people participated in the first reading, of Ayn Rand's "Atlas Shrugged"-- the 55-year-old said he had not yet settled on the next selection. "I'll have to choose a different philosophical bent," he said.

With up to 5% of the stock offering reserved for employees, officers and others close to the firm, Mr. Moelis suggested jokingly that perhaps the IPO prospectus should be required reading. "Everybody is an owner. We like that," he said.

Write to Matt Jarzemsky at matthew.jarzemsky@wsj.com and Telis Demos at telis.demos@wsj.com

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information. Intraday data
delayed per exchange requirements. S&P/Dow Jones Indices (SM) from Dow Jones & Company, Inc.
All quotes are in local exchange time. Real time last sale data provided by NASDAQ. More
information on NASDAQ traded symbols and their current financial status. Intraday
data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. S&P/Dow Jones Indices (SM)
from Dow Jones & Company, Inc. SEHK intraday data is provided by SIX Financial Information and is
at least 60-minutes delayed. All quotes are in local exchange time.